諾和諾德 (NVO) 2007 Q1 法說會逐字稿

[Audio starts in progress] time schedule because we are being webcast today.

On behalf of Deutsche Bank, I'd like to thank the management team of Novo Nordisk for coming in to [inaudible].

There's going to be a short presentation by Jesper and Mads, then leading up to Q&A.

If you could turn your mobile phones off that would be great, so it doesn't interfere with the webcast.

And afterwards there'll be some lunch served next door.

Over to Jesper.

The roadshow presentation has not significantly changed from full year so we'll try to be rather brief, Mads and myself.

Of course we'll be dealing with forward-looking statements.

You're very familiar with this one.

It involves uncertainty to make predictions about the future.

I'm going to cover highlights and strategy, take the first bit of the sales update, and then Mads is going to take over and also do R&D and I'll do financials at the end.

The highlights in the first quarter was really a very continued solid development in our key franchises with a 16% growth both in local currency, both in our diabetes care franchise and in the biopharmaceuticals, but a very, very significant negative currency impact of 6%.

I think you should note that this is a quarter that marks that we have solid double-digit growth of all our key compounds, both in diabetes but also, of course, except for human insulin, but all the key compounds are growing double digit, as illustrated here.

In terms of R&D, the key thing was that we got upgraded the label for Levimir, so we now have a very competitive label both in the U.S.

and Europe.

And we also had approval for NovoSeven so it can be administered in one large single dose, making it easier to use prophylactically for hemophilia boys.

And then, secondly, that we very rapidly got completed our liraglutide Phase 2 trials where we are trying to use liraglutide in non-diabetic patients.

And that is to me just a sign that there is a significant market opportunity if we're able to demonstrate that liraglutide can safely be used in the non-diabetic population to create significant weight effects.

On the financial side, as I said, significant currency impact on sales.

We had continuation of the solid development we had in our gross margin from last year.

But I ask you to bear in mind that we had a very easy comparator in the first quarter of last year.

The level that we are operating on now, of around 76%, that is somewhat similar to what we did in the last three quarters of last year.

But a solid continuation in our improvement in gross margin.

I have a slide getting back to that later in the presentation.

Operating profit growth of 24% but, of course, here more than 10% negative impact from, primarily, the decline of the U.S.

dollar.

So, if we look at it underlying, it was more than 35%.

The strategy is unchanged and the only significant change which has been made to the strategy this year has been the discontinuation of OAD.

That is no longer part of our strategy, as we've actually in the first quarter out-licensed the first of our early stage OAD compounds, the glucokinase activator.

Apart from that, the strategy is unchanged.

So we're focused on proteins within diabetes care, supported by our ability within drug delivery and with a global specialist reach.

Within biopharmaceuticals, it's driven by our NovoSeven and our growth hormone franchise.

And then, finally, we are trying to establish new areas, primarily within the area of inflammation.

If we look at the sales growth, basically Novo Nordisk has a very strong market position.

Within insulin we have a 52% global market share.

And we have a leader position in all the four sales regions we have, coming from 75% market share in Japan and Oceania and down to a market share in North America of around 42%, but increasing.

If we look at the core franchise, the insulin franchise, we have said for the last five years that we expect our insulin franchise to grow at least 10% year on year, 5% coming from more patients and 5% coming from a value upgrade.

If we look at the last five years, from moving annual total February 2002 to 2007, the volume growth, as you can see from the slide to your left, a volume growth of 5.4% on a compounded annual growth level.

And, in terms of value, we've had a value growth of just over 10%.

So a 5% additional value pick up, primarily coming from moving patients from human insulin onto the modern insulins.

And in terms of the growth in patients, these are just the latest data that we have from the International Diabetes Federation from December last year, where they actually upped the number of people currently with diabetes.

The last number from 2003 was showing 177m and now it goes up to 246m.

So that just gives you some indication of the magnitude of an opportunity we have in front of us.

So you could say, in addition to this, there will probably be another 300m with 3 diabetes, so it could be around a tenth of the global population who either have diabetes or are in the pre-stages of diabetes.

And, of course, that number will continue to grow as people basically eat too much and exercise too little on a global basis.

In terms of our sales growth, here we have illustrated how the sales were.

As reported, 73% of sales coming from our diabetes care franchise, growing a reported 10%, and then supported by the biopharmaceutical franchise, also growing at similar levels.

As you can see here, the distribution of growth is key for us to continue to roll out our modern insulins.

They are the key drivers behind the growth and the key focus of our sales and marketing effort.

But also note that we have solid growth rates for all the products down in biopharmaceuticals.

In terms of the modern insulin, as you can see, we are seeing a steady increase in market share since launch, both for NovoLog and NovoMix.

And in Levemir we've had a slower penetration but still a continuation of penetration.

In Europe we expect from now onwards to benefit from the improved label we had, as I just talked about.

And in the U.S.

we hope to benefit from the expansion of our sales force, which is being undertaken currently, will be completed by the end of this quarter.

And with effect from third quarter we should have 1,900 dedicated diabetes care specialists out marketing our portfolio of insulins, and with a primary detailed focus on Levemir in U.S.

in the second half of 2007.

In terms of growth, as you can see, half of the growth is coming from the first established products.

And this is actually the DKK1.5b sales realized in the first quarter is actually on a moving annual total, turning NovoRapid into a U.S.

dollar blockbuster.

And this is the first of our insulin analogs turning into a blockbuster and we would clearly anticipate the same to happen as we penetrate with the two other -- in the two other insulin segments.

In terms of the conversion, the conversion of the insulin market is gradually moving from human insulin towards the modern insulin at a conversion rate of 6%, 7% year on year, as almost all of the new patients in the developed markets are moving on to more advanced insulins.

And as a consequence of us being the only company now with a full portfolio of modern insulins on the market, you see a steady increase in our market share and now we are clearly the volume leader in terms of modern insulin on a global basis.

Over to you, Mads.

Thank you, Jesper.

Jesper mentioned a lot about blockbusters and so on.

It is actually our anticipation that with the current currency rates for the dollar and so on that NovoSeven later this year will also achieve the same status.

And that will be achieved on the backing of still robust growth.

You can say it is a very serious inhibitor treatment, both spontaneous bleeding, surgery, acquired hemophilia.

But also still we perceive the investigation of use to be increasing.

It's driven both out of North America but also with healthy sales in the European region and growth there.

Iran, Iraq have been weak due to some of the more political reasons over the last quarter.

The single high dose approval was approved by the European Commission and does provide a clear and distinct patient benefit in terms of less disruption vis-a-vis multiple intravenous administrations over a five, six hour period.

Instead, the boys, the men and so on can inject themselves once and once only, and control the bleeding.

Among elderly patients it's also an issue about venous access, as it is also for very small kids.

So we believe this is a upgrade in terms of the product.

If we look at Norditropin, we have a little bit the same situation that there's healthy growth.

In this case it's, we believe, driven by our product superiority.

The notion that we have, as you know, the liquid version of growth hormone in a pre-filled device, called the Nordiflex, makes us less sensitive, A, to biosimilar competition and also puts us in a preferred status vis-a-vis many patients.

And this is the underlying basis for our aspiration over the next, let's say, three years or so, to aspire to becoming the market leader, exceeding Pfizer who is currently in the first position.

Again, North America and Europe are providing the growth.

If we then look at the sales by region, the U.S.

is continuing to drive impressive growth.

We have a situation where more than half of the Company growth is coming out of the U.S.

But also, actually, Europe is doing quite well.

If you look at the IMS data for the pharma industry at large, it's around 5% growth.

We're seeing Europe in Novo Nordisk driving double-digit growth.

International operations, here we are starting to see penetration of the modern insulins in countries such as Turkey, Russia, China, whereas we are a little bit weak on the [synthe] side -- synthe sales in Brazil.

And, as I mentioned, certain markets for NovoSeven, Iran, Iraq.

Overall, it's a healthy picture where we will expect to see North America become the biggest region over the next couple of years.

Japan and Oceania is a market, as you know, that is somewhat stagnant but we are still having robust performance for the two modern insulins and hoping to launch the last one, Levemir, later in the year.

If we look at Levemir, talking about this, there is no doubt that with the latest label that the European Commission approved about a month ago we are, indeed, in Europe in a very strong position vis-a-vis continuing the growth trajectory, i.e.

we now have [inaudible] [lenses] on the once daily administration in Type 2 diabetes and we have superiority in that we have claims on nocturnal hypoglycemia, predictability and weight control or weight maintenance compared to our competitors.

So we believe that the growth trajectory that is currently at 22% of the basal analogue market in Europe is set to continue.

If we look at the U.S.

performance, we have a situation where the modern insulins actually grew or are growing by 40% Q1 over last year's Q1.

And this is driving a healthy total diabetes sales growth of around 27%.

We are seeing a situation where with 42% market, volume market, share in the U.S.

we have become market leader.

And we expect this trend to continue, as Jesper alluded to, also driven by a further strengthening of the sales force by 700 reps that are about to be fully recruited in the first half and will be on the road and doing business, we believe, towards the latter part of the year.

If we look at Levemir specifically in the U.S., there's been a lot of discussion vis-a-vis how is the penetration actually going.

The situation is that, as of the last week, the scrips for the -- total scrips out of the basal analogue segment, or modern insulin segment, in the U.S.

is like 6.7% and 8.0% if we look at new scrips.

Hence, we are to some extent delivering the growth that we were hoping for but we would like to accelerate, and this is why we have increased our reach into the GP territory by recruitment of 700 new reps.

The formulary coverage is actually good.

It's close to 80% in the non-preferred or Tier 2 status, which is as we were hoping for a year ago when we launched.

R&D, briefly.

We have a situation where there's a lot of discussion ongoing about Liraglutide and when will data come and so on and so forth.

Jesper has mentioned that for obesity we have completed the recruitment of the Phase 2 trial.

This means that it is set to report in the early part of next year.

Whereas, for the main Phase 3a program in the diabetes indication, which is after all the primary target for this molecule as we speak, that is set to deliver results starting in the early part of the second half.

And then the following six months we will see the lead trial from 5, 4, 3, 2, 1 and so on, report both from European and U.S.

data.

And of course, we will report that to you at the appropriate point in time.

If we look at Levemir, the only outstanding issue currently is actually to get the Japanese approval.

We are in the final discussions with the PMPA in Japan and it seems as if we will be able to launch, as we have communicated previously, within this year.

AERx, the only thing I'd like to mention there is that the Phase 3 recruitment is going along, as previously communicated.

But the news is that it seems as if we, at least in the in vitro setting, i.e.

at the lab test scale, are able to reproduce the performance of the original AERx device with a new smaller version called the AERx2, which is going to be the commercially launched device as we go to market.

We actually also believe that there's been a lot of discussion on why is Exubera not doing so well.

Some would actually say it's doing rather poorly.

And I think that with the new device and the fact that we have a unit increment dosing, we have units rather than milligrams and we have a high degree of ease of use of the device, we actually believe that we will be in a different situation than the existing Exubera device.

It does not change the notion that overall the inhaled market may be less impressive than it was, particularly a few years back.

I would like to mention one word about the next generation modern insulins.

We believe now that, based on very extensive tests in both Type 1 diabetes, Type 2 diabetes and, of course, also healthy volunteers in the Phase 1 trials, we are in a situation where we actually will hopefully be able to bring yet another value upgrade and patient upgrade in terms of injectable insulins of a new generation, second generation, of analogues.

However, it's still early days.

We have still only completed a number of Phase 1 trials.

Next slide.

If we look at NovoSeven, not so much new to say, apart from of course the disappointment about ICH.

We continue to analyze and sub-analyze the various populations, the top populations, from the trial.

Some data has been announced over the last few days at a conference.

But what is really going to happen in the next very brief period going forward is the submission of the heat-stable version of NovoSeven, which in a different way than the high dose, single dose, application will provide the patient benefit of portability.

It will be possible for the patients to walk around and, upon need, as the joint bleed or the muscle bleed or the whatever bleed is precipitated, the patient will be able to inject himself basically immediately upon onset of [technical difficulty].

Otherwise, the trauma is progressing [in this week].

The cardiac surgery trial, we have communicated yesterday that there is a further delay, such that due to it took us longer to get the extra sites on board, as we have communicated, took us longer, meaning that we expect now to be able to finalize that trial in the first half of next year.

In fact, the Seven analogue is set for entering Phase 2 development, based on the backing of good biomarker data in the Phase 1 trial, where we reproduced the animal data.

We reproduced them at the biomarker level also in human beings, providing faster and more efficacious action than classical NovoSeven.

Finally, on my last slide, we are in the situation that Activelle low dose has been, or is being, rolled out after the FDA approval in the U.S., whereas it's still in the regulatory phase in Europe.

Likewise, Vagifem low dose is in Phase 3, both U.S., Europe, and is something that we expect to complete during this year.

Norditropin, the growth hormone, is moving later this year into a Phase 3 trial for dialysis treatment, chronic renal failure patients.

And this is again based on the backing of biomarkers in Phase 2.

Interleukin 21, here something has happened.

We are now doing Phase 1, Phase 2 mixed small studies to the tune of 20, 30 patients, up to 80 in one case, based on dose escalation and primarily safety assessment, but also looking into biomarker signs of efficacy in terms of both renal cell carcinoma together with a tyrosine kinase inhibitor and also colorectal cancer, together with Erbitux, also known as Cetuximab.

Anti-KIR is a first-in-class antibody.

It's the first to specifically target natural killer cell activation.

And hence we're excited by being able to announce that we have put this into Phase 1 development together with our partner, Innate Pharma from France.

With that, over to you, Jesper.

Then, on the financials, I think the key comments here will be [inaudible].

I'll most likely talk about gross margins, just on sales and distribution cost 31% in Q1.

I'd like to note that there are DKK200m included in the provision for a -- either we will likely to be facing in Brazil regarding an antidumping trial that they expect to file, to 2002 when we acquired the Brazilian local manufacturer BioBras.

So that's included, these DKK200m in sales and distribution costs.

And actually, also in net financial, an expense of DKK100m has been taken in interest on the same matter.

R&D is getting closer to the 17% of sales that we are expecting for this year, and admin in the ballpark of 6% of sales.

This has then overall delayed our net profit to grow by 41%.

Included here are a tax rate of 28%.

I'll get back to comment a little a bit about the tax expectation and what we are expecting for the year and going forward there.

But you should also note that the growth levels you've seen in costs of 12% and 16% on R&D and S&D is based on an employee-level growth of only 7%.

So a significant number of this growth in costs is also related to external costs and patient costs in relation to R&D.

In terms of gross margin, a very significant development of 3.4% [technical difficulty].

Danish corporate taxation set-off, so that the Danish corporate tax rate is lowered from 28% currently to 25%, with effect from 2007.

We expect this tax law to be adopted and supported by the Danish government and the key supporting party, who has majority in the Danish parliament.

So it should be expected that it is approved.

If it is approved, it will reduce our 2007 tax rate with 2% because of the reduction from 28% to 25%.

And that's on a recurring basis, so you could actually use that also for subsequent years.

And then, in addition, we have to revalue the tax liabilities we have and that will give us another percent.

So if you add it all up, and this tax reform is adopted, you can actually deduct another 3% from the 25%, so we should be down to 22% for 2007.

If you look for 2008 and onwards, it's reduced to 28% and then deducted 2%, which is the ongoing, the recurring effect of the Danish tax reform, leaving us at a 26% tax rate for 2008 onwards.

Net financial income is upgraded significantly, of course because of the Dako divestment, that's DKK1.5b, and then on top of that a significant upgrade on our hedging gains.

That's of course a reflection of the beating we've taken on operating profit.

And then, on top of that, we've also included this DKK100m expense in relation to the antidumping trial case ongoing in Brazil, and that's included in this outlook.

Tax expenses are unchanged.

Free cash flow ops, DKK1.5b or close to DKK7b.

But of course included there is the cash flow that we will get from the divestment on Dako.

And here we just illustrated to you on what rates that we've made these predictions and these were the mid rates from the Danish National Bank as of Friday.

So this sums up the presentation.

We have a very, very solid strategic position, number one in all our key segments except for global growth hormone, where we believe we still have the best products and the best device so we'll have to make that a number one also.

And then there's here the key growth drivers, and with that I think we'll be ready for Q&A.

Rachna Upadhya from Bear Stearns.

I had a question on your long-term target of an operating margin of 25%.

Given the recent strong underlying performance of the business, is that really an accurate estimate or are you being too conservative?

And can you actually run through your assumptions as best you can?

Thanks.

It's really unchanged.

The way we look at it is that we believe that the operating margin of a business like ours has the opportunity to at least grow to 25%.

It could probably grow slightly more than 25% but we would much rather invest more in R&D than bringing it significantly north of 25%.

You shouldn't read the 25% as a dogmatic number for us to come to and not go above.

But we have historically only moved our long-term targets in numbers of five and setting up a target of 26% doesn't make sense.

The primary target we have in our financial long-term target is our growth in operating profit.

We want to grow our operating profit 15% year on year.

To the degree we're not growing our turnover by 15%, we'll have to expand our operating margin to get to an operating profit growth of 15%.

And we -- there is some room for doing that but you've seen us over the last couple of years actually take our R&D ratio up from 15% to 17%.

And we will be very comfortable in taking it up another percentage point or two going forward in the remaining part of this decade.

So, if we do things well, we will probably be in the ballpark of 25%, maybe 26%, on operating margin.

We have grown our business 15% operating profit-wise year on year in a relative stable currency situation.

And then hopefully we have expanded our investment in R&D to a level of around 18%, 19% when we are towards the end of this decade.

We believe there would be a very interesting proposition for our investors with some very promising candidates coming into the pipeline this year and next year, the clinical pipeline, not only the modern insulins and the second-generation modern insulins, also second generation in '07, so that will give us good protection for our current franchise.

And then, on top of that, I believe we will have a portfolio of very interesting compounds in the area of inflammation that also will require investment.

So we believe we have the candidates to bring forward and that would then require us to up our investment levels in R&D.

And we're comfortable with that and we're comfortable with the progress that we see attrition wise [inaudible].

I have a question on the gross margin, long-term guidance for that.

Because you've made good progress this year, do you not think that you're going to get sustainable improvements longer term in the gross margin, which will then obviously have some boost to the operating margin?

Well, I think two comments.

Yes, it's true that we've made very good progress.

I also hopefully highlighted that the progress we've had in the first quarter, I think, is a little bit not a true reflection of what the improvement has been this year.

I think 100% basis point improvement this year we're very comfortable with.

I think, as we move forward, of course making improvements on an ever higher level gets more challenging.

I still think that the guidance we've given all along for the rest of this decade, of having improvement between 50 to 100 basis points, I still think that's very realistic and I think we have plans that will document that we can deliver that.

So we'll stick with that.

You can also see on the selling and distribution costs that being competitive in the area of selling and distribution in diabetes is requiring more investment from us.

And the guidance we give now for the selling and distribution costs is actually slightly north of 30%.

So 30% to 31% realistically for 2007.

To maintain a share voice in the U.S.

market, you need quite a significant sales force currently.

So if that's the level that's needed to compete competitively, we'll be at that level.

And then you'd see marginal improvements in our hedging costs, but that's only a minor question.

So I think, overall, I think we are comfortable and then we'll basically let the improvement in gross margin flow to R&D investment and it will flow to better operating profit.

Thank you.

And just one final question on the R&D progress.

The -- you just mentioned the second-generation insulin franchises have delivered some Phase 1 data.

Obviously it's very early days but can you maybe give us an idea of what you would hope that the second-generation insulins would provide, over and above what we see with the first generation?

Yes.

I think the easiest example -- but there are two good examples.

The easiest one, from a layman perspective, is to look at the premixed insulin, where today NovoMix 30 is doing well, as you could see from Jesper's presentation.

But we have this situation that it's a crystal suspension.

So you need a lot of rotating and extending arm and what-not before you inject.

That also leads to a variability, so that the last dose you get is not always the same as the first dose you get because this suspension might not be 100% homogeneous.

On top of that, we know that the premixes, and I'm not bad-mouthing our own products because NovoMix is a good product, it's the best there is, but we do know that it's not truly [biophasic].

We have a situation where there's not a distinct, let's say, prandial phase followed by a distinct basal phase that acts for 24 hours.

But this we would like in the next-generation product and this we are hopeful, based on the Phase 1 data in Type 1 and 2 diabetes, that we can achieve.

For the basal it's a situation where we published a direct head-on comparison between Levemir and Lantus at the ADA last year.

And you saw two nice profiles.

But they were not completely peak-less and they were not completely 24 hours either.

So there you would want less at the peak time and more in the tail end.

And [such a baseline] we also believe we have data from, albeit early data because these are the patients, but these are the patients in Phase 1 that have only been dosed acutely and up to one week.

Thank you very much.

Just a quick question on the sales force expansion.

You're adding another 700 reps.

You said it was mainly to target the GP population.

Perhaps you could tell us what's the percentage of Type 2 diabetics are prescribed insulin by the GP as opposed to a specialist.

And then what sort of current share of voice you've got in the GP market versus, say, the specialist market and perhaps where you'd like to get to in that share of voice over the next, say, 12 months or so?

I think some of the details on share of voice, I think I'll pass on to Investor Relations.

But what I would like to comment in terms of focus of the sales force is it's not solely a GP growth.

It would first -- or one element would be to up the frequency with the current key prescribers, and that's of course primarily endocrinologists and diabetologists.

So there will be a frequency increase in the call ratio to the primary prescribers.

I think, with the adjustments we do and as we go further out, we will cover more than 80% of the doctors prescribing insulin with the revised sales force structure.

I don't know, Mads, in terms of the detailed numbers on share of voice, if you can help me on that one.

If you look at the Type 2 diabetes, to take your first question first, we see it as approximately two-thirds of insulin initiations actually happen at the GP level.

In terms of share of voice, we have seen, after the first expansion of sales force from 800 to 1,200, we reached a higher level but we're actually down to the same level as before that first expansion now.

We have clearly a higher share of voice at the specialists compared to the GPs but we're trying to change that with the new expansion.

I can't give you the exact numbers of the share of voice.

And the final [inaudible], of course, that a larger proportion of their time will be used on Levemir, as we're still in good shape on NovoLog and NovoLog Mix.

So there should be some added value also on that, let's say, Levemir kind of reinforcement.

But clearly, on share of voice, our target is to match the most active competitor currently in the market [inaudible] if we want to have the same share of voice.

Liz Mitchell from MainFirst.

Talking about Sanofi Aventis, some of their comments on their Q1 conference call this morning.

First of all, have you had a look at their new SoloSTAR delivery device and how do you see that compares to your FlexPen device?

Secondly, in the conference call they actually said they weren't seeing that much trouble from either Levemir or Byetta, and in fact claimed the sales were up 28%.

So do you feel that your sales are coming more from new users or Eli Lilley?

Can you comment on that?

And just thirdly, this is just an idea of mine, but if you do get good results for liraglutide for weight loss, would you ultimately see that competing with Acomplia in the metabolism anti-diabetes space?

If I deal with the sales of Levemir and how these spill over into Lantis, you can see from the growth rate of Lantis, of course, that the absolute growth rate in percent is coming down.

And that's exactly like what we're seeing from NovoRapid, which has been on the market for more or less the same period.

We're still seeing very significant growth numbers in percentage terms for Levemir.

The predominant part of [Basulin] will probably be 90% or so of patients are not coming from other analogs onto Levemir.

They are typically insulin naive or coming from -- or being previously on human insulin.

I think it's fair to say that both Lantis and Levemir, both of them are very good basal analogs and it's not -- the key game for neither Sanofi-Aventis or Novo Nordisk is to try to convert patients from one analog to another, but it's really a game of getting new patients onto better insulins or moving them from human insulin onto better insulins.

So that comment's just normal and that's what we see in all segments.

So there's nothing unusual to that and we don't anticipate to really convert a significant number of Lantis patients.

That said, we do believe that Levemir has significant merits in terms of weight neutrality and a flatter and more predictable profile than Lantis, and that has some merits in it.

But it's more in recommending to the doctor which choice he should make.

I think that would be the first one.

Then, liraglutide and Acomplia, Mads?

Yes.

And maybe one comment on the SoloSTAR.

The SoloSTAR, as we see it, does look quite a lot like the FlexPen and probably also in terms of how patients perceive it.

So that means that if it is -- last year, for instance, we administered 1b doses with the FlexPen, 1b doses to people with diabetes.

And we know exactly how robust and how [low peak rates] and so on we are seeing on that device.

It's of course too early to speculate on what will the situation be for SoloSTAR.

But it does mean that if it is robust and doesn't have the problems that some of the previous pens have had, they will of course be in a better situation until we come with a next-generation device.

And we do not comment on device research per se.

As you know, this is an area that is less disclosed than the molecule or drug discovery research.

And then, Mads, just before you move on, just on -- I think interesting on SoloSTAR is of course that if we can get the pen penetration moving in the basal segment in the U.S., that can do significant changes -- make significant changes to the pen penetration in the U.S.

I remind you that currently only 4% of basal patients in the U.S.

are using pens, whereas it's 14% of total population which are using pens.

So if we can get new patients in the U.S.

to start basal treatment also in a pen by having both manufacturers coming with pens, I believe that there is a significant opportunity converting the U.S.

market to pens, and hence longer term create a challenge for new competitors to enter the field, because not only do they need to have insulins but they also then need to have competitive devices, which has shown to be a challenge to get [the format] and then on to deliver.

Liraglutide, we actually already last year announced, albeit a pre-clinical study, where we compared Rimonabant with lira in animals, and actually saw that the [biggest yield] at the top of the dose response curve for lira compared to the similar max efficacy dose of Rimonabant actually provided superior weight control in the animals.

So this is pre-clinical.

If we show data that are similar to or better than Rimonabant in our obesity study, the situation is of course that we would apply for a pivotal trial, aiming at people with a BMI of above 30.

And here we know that particularly for women this is associated with a 40-fold increase of the patients encountering Type 2 diabetes.

So we think there's an unmet need and I don't think we'll be going, you can say, up against Acomplia in metabolic syndrome because metabolic syndrome is so big, there are so many people, as Jesper alluded to, that have Type 2 diabetes and metabolic syndrome in general that it's such a large unfulfilled market that of course you can say there will be two product offerings.

One probably you can argue with a, in my mind, better safety profile because the Rimonabant issue is that there are some patients reporting mood disorders and depression and so on.

We do not expect to see that kind of thing for liraglutide.

On the other hand, once -- ours is a once-daily injection, theirs is a tablet.

So there are swings and carousels for both the products.

Michael Leacock at ABN.

Just looking a little longer term at the insulin market, with liraglutide up there towards the end of this decade and Byetta and maybe Byetta LAR, could you just walk us through where you think the dynamics in terms of volume will be for the insulin market in terms of will patients merely be delayed and then go onto the insulin?

Do you think the insulin market would actually shrink?

And then perhaps could you talk also about value.

Is there an opportunity here to take those patients that would have gone to insulin and give yourself a big value increase with the liraglutide launch?

Yes.

I think, if I start with the dynamics as we see it.

The reason why we're not seeing Byetta having an impact on, let's say, the volumes of insulin sales in the U.S., neither ours nor competitors, in spite of them having grabbed 10%, 11% of the value share of the injectable market, it is simply that they are really taking out something like various old-fashioned [secretables] and probably also things such as glutazones and so on.

So, i.e.

rather taking out patients from the existing OAD market than the insulin market per se.

That being said, we are aware of the fact that many patients are co-administering both Byetta plus, for instance, the basal insulin.

And this basically is important to notice because as we see lira hit the market and potentially other long-acting compounds such as LAR, etc., you can argue that they will be more efficacious because they act 24/7 in contrast to Byetta.

And this will of course mean that the patients can potentially be taking the products for a longer period of time, and per se that could imply that some of the lifespan of an individual with Type 2 diabetes that should have been on injectable insulin, in principle could go to a long-acting GLP1.

Is that good or bad news?

Well, good news for the patient in principle because they will be less prone to hypoglycemia and weight gain, but also good news to Novo Nordisk provided that liraglutide is a competitive product.

Because basically we are seeing a pricing for Byetta which is like $7, whereas analog of insulin in the U.S.

is around $4, so there's another value upgrade.

This not from human insulin to analog insulin but from, you can say, even analog insulin to a long-acting GLP1.

I should say that as a GLP1 agonist fails to provide glucose control after maybe five, six, seven years or even more, who knows, the situation will be that the patient must go onto insulin.

And that means insulin for many years.

That being said, it's highly likely that they would just likely stay as being on Metformin therapy as they add insulin.

I would predict that they will stay on liraglutide as their insulin, for the simple notion that if you stop treatment with liraglutide you will have a situation where the patient starts putting on an awful lot of weight, probably.

And this would mean that you would have a market where there could be a coexistence of, for instance, liraglutide and [GLP1] for that matter.

And of course, on the value side, I think it's very interesting to see how Byetta has been introduced.

You're seeing it having a price in the U.S.

of around $7 per daily use and that compares up against a $5 for modern analog in a pen.

In Europe my understanding is that the introduction in the U.K.

has been targeted at a price of around EUR3.5 per day and that compares to around EUR2 per day for an insulin pen.

So I think you're spot on, Michael, in predicting that this is a significant value opportunity for us.

And of course, provided that we have a competitive product in liraglutide, we don't have to be so concerned as to whether it's the GLP1 market that grows and what implication it will have on the insulin market, provided we can get an acceptable share of the GLP1 market.

And I think the pricing in Iowa, in Japan, etc., will flow from the prices we see in Europe and the U.S.

Thank you.

Tero Weckroth from Dresdner Kleinwort.

Firstly, going back to that Acomplia comparison and the liraglutide clinical data, can you just remind us when this year will we hear the weight effect of liraglutide as monotherapy versus placebo?

Will that be in the first clinical trial that will be out in the early second quarter or later in the year?

And then, secondly, of entrants to the insulin market, could you see any possibility of new entrants in the market?

Specifically, there's something that caused me a surprise at least, there's this U.S.

company called Biodel being IPO-ed and they claim that they have an insulin product in Phase 3 which has been shown to be more rapid in action than Humalog.

If you would have any comments on that, that would be interesting.

Thank you.

Okay.

The last one first.

It is true that we saw something about that at some point and could really not understand what was going on.

And I simply fail to remember what it was but we can get back to you on that one.

I would say the rapid-acting insulins as NovoLog, NovoRapid and so on, and also competition's insulins, are such that you don't really want to change the profile.

The action, time to peak, is around 60 minutes, which is ideal.

That's where you have your glucose max excursion, after a meal, whereas for human insulin it's around two hours.

And the peak amplitude is about twice the size of human insulin, which is also what you want because there's too little insulin too late for human.

So that's not really a point to change that profile.

That's actually our problem.

Our problem is that we cannot -- well, it's not a problem, it's a challenge.

For our next-generation rapid-acting insulin we don't want to change the profile.

We want to change the mode of administration, infusible, oral, pulmonary and so on, and that will be the upgrade we can provide.

Of course, when you're talking about rapid-acting analogs, crucial is delivery mechanism.

And you can actually see from the limited success that we've seen from Apidra, I think a significant element of that lack of success from Apidra stems from a lack of having a competitive device, and of course having a significant selling parameter over Humalog or NovoLog.

I think that is a challenge.

So making a better fast-acting, I think that's really the challenging [matter] you're looking for.

Sorry, the other part.

Yes.

So basically the take-home message is that for premix and long-acting segments it's still further engineering, not in the backbone of the protein but in the side-chain attachments that we're doing.

And for the fast-acting, it's modes of delivery and routes of administration.

Vis-a-vis liraglutide, we're actually not announcing the obesity data this year but rather in the early part or in the first half of next year.

Because we have just announced that the last patient was recruited and then dosing is going on for 20 hours -- 20 weeks, sorry, and so forth.

Yes, we'll get one-year data from a monotherapy trial.

And you're absolutely correct in stating that it would be interesting to see what is the overdose response, but in particular also the absolute placebo-adjusted weight decrement after one year in diabetics compared to, for instance, in obese non-diabetic people.

Because there are speculations, actually, that you will see more of an effect in non-diabetics because you don't have the so-called gluco-regulatory effect that counteracts the obesity effect.

Thanks.

Lachlan Towart from HSBC.

Just a follow on from the Byetta questions regarding co-administration of Byetta and an insulin.

It was my understanding, Mads, that patients who are taking Byetta and remaining on it would reduce their insulin.

Have you seen any -- has that impacted your sales or is it just too small a number to be an issue?

And then, going the other way, in the future do you see a pricing concern here?

If you're talking about having $7, maybe $8 by then for an LAR a day to $5 a day for insulin, it's clearly a lot more expensive than adding Metformin to insulin.

Do you expect any pushback there or would you be able to overcome that?

And then, a clarification.

Jesper mentioned pricing in Japan stemming from, I think you've said, from European pricing.

Can I just confirm you're talking about liraglutide, because if I misheard and it was Levemir my understanding is that premiums in Japan are a lot lower [than here]?

Thanks.

Well, if I just clear the confusion on prices.

The -- I was referring to the expected prices on liraglutide, expecting them to be roughly similar to the European prices.

In Japan, it's right that the premium on the analogs is lower than what you see in Europe, especially in the U.S., but the absolute price level in Japan on the analogs are actually quite attractive and are actually higher than the European prices.

So insulin prices in Japan are quite attractive.

The problem we're facing in Japan is that they're using quite low volumes of insulin, so actually getting the patients to up their insulin injections could give them a better blood sugar control and increase volume growth in Japan.

And Mads?

I think the real issue, it is true that when you, for instance, go onto insulin in a patient who's -- sorry, the other way round.

If you are taking insulin and then suddenly Byetta comes around and you add Byetta, it is true that there's a trend to lower insulin doses.

You should bear in mind that the 11% value market share that Byetta has currently is driven by a volume of only around 3%, so we're not seeing anything on the volume side.

But you can then argue, as Professor David [Nathan] does, the gentleman behind the [BCC] and [inaudible] studies, there is so much underutilization, under-dosing of insulin, that in a year somewhere between 50% and 100% more insulin should ideally be used to get the patients below HB [once you have] seven.

The average today is close to nine.

So you can argue, it could either improve therapy, take A1C further down, or at the same A1C obviously you would need less insulin, as you also do for Metformin and the glutazones.

Pricing is not [inaudible].

Pricing in what respect?

I was just curious if you could anticipate any pay or pushback on the pricing implication to patients taking 11mls plus liraglutide [inaudible].

I believe that -- so far we haven't seen any significant pushback in the U.S.

I think if we will see a pushback it's largely going to be politically driven.

If you look at it from an insurer point of view, the advantages of getting people in better blood sugar control longer term in terms of avoiding people going into dialysis treatment, etc., the pharmaco-economics there are fine.

So I think, from a pharmaco-economic perspective, I don't have any significant problems with the price levels we're mentioning in the U.S.

I think there is a structural problem between the pricing in U.S.

and the pricing in Europe and why we should see so significant differences.

But if you look at the insulin area, you may be looking at a difference between EUR2 a day and $5 a day, and with the way the U.S.

dollar is declining that difference is actually being somewhat reduced.

I think it's fair to assume that the longer-term pricing power in the U.S.

is becoming lower and would be probably market lower if we had a Democratic majority in both houses, Senate and as President.

But that remains to be seen.

[Inaudible] from Deutsche Bank.

Just two quick questions, hopefully.

The first one's on GLP1.

Mads, I wondered if you could just compare once weekly and once daily products for us, the advantages and disadvantages, if you assume that once weekly has similar efficacy and probably a lower C-max in terms of nausea issues, if you could provide that contrast?

Then, secondly, channeling the Dako gain into a share buyback instead of externalized R&D opportunities, is this a reflection that you're still finding it difficult to find interesting assets in oncology and inflammation, or you're happy with your internal assets or a bit of both?

Could you comment on that as well?

If I can start on the first part and then Jesper can also chip in on the latter.

First of all, when we do our own market research, which of course we've done in great detail, we see several factors coming into play when you compare, for instance, a liraglutide with a once-weekly product.

And if this once-weekly product is something that is associated with a significant pain perception, i.e.

a needle thickness beyond, or let's say below, a certain gauge, then actually there's not a patient preference for once weekly.

In particular, if it's not administered also in the device.

So if you then compare more directly how do we see liraglutide versus LAR Byetta, then I see the benefit of LAR basically being the once weekly as opposed to the once daily.

That being said, we know for sure that our needle thickness and pain perception will be much lower, we'll have a dedicated device and not a violent syringe approach where -- quite a lot of procedures, if you take the amount of steps that the nurse is doing before injecting the patients in that Phase 3 trial, it's numerous actually and it takes quite some time.

We will not see injection site reactions; at least we have not seen it in the Phase 1 and 2 trials.

No bruising.

We have not seen antibody formation.

We have seen less fluctuations on the plasma profiles because ours is a [inaudible] bound protracted progression rather than something undergoing potentially erratic mixed zero first order dissolution kinetics in the sub-cutis due to the microcells.

And this has led us to see single-digit rates of placebo-corrected levels of nausea, etc., which I believe so far have been reported somewhat higher in the case of the long-acting Byetta, but also has seen more antibody formation in Phase 2 than they do for the soluble Byetta.

So I think this will be very exciting and also interesting to see, let's say, not only our data but also the data from our colleagues at Lilley and Amylin.

And on the DKK1.5b in gains we got from the Dako divestment, this is clearly a non-recurring event.

And the way we'd like to return cash from non-recurring events to our shareholders is not in the form of dividends but rather in the form of share buybacks.

That doesn't rule out that we could not find opportunities which would then, if those opportunities occurred, make us postpone or cancel ongoing share repurchase programs based on the specific amounts we would be talking about.

But linking such events, that would be very problematic.

So I think it's much more appropriate that we, when we have an event that gives us an extraordinary cash flow, we tell our investors clearly what are we going to do with this cash.

We don't want to build up cash on our balance sheet.

We don't think that's preferable.

In terms of having a need for further boosting the pipeline in terms of end licensing, as you can see from the numbers in Q1, we are busy currently with our current pipeline.

And we also believe we have a good flow of pre-clinical compounds going into clinical development over the next 18 months or so.

So in terms of being able to spend 17%, 18% the next two years, I think we have no current problem there, Mads.

No.

And the only thing to add, I think, is clearly, Mark, that if you look at our core assets, the insulin molecule and analogs thereof, same for [inaudible] for growth hormone, plus the injection device platform technology [inaudible], these are the areas where we will continue to innovate very strongly in-house and are doing so substantially.

Whereas the other areas, i.e.

non-injection-based drug delivery of peptides and proteins, plus of course new targets within the biopharmaceutical area, these are really where we will do a biotech collaboration and even potentially acquisition.

Can I suggest that we just do one final question?

I think we have the gentlemen here, and then we'll, Mads and I and Lars and [Mads], will be available outside also for clarifying questions.

David Seemungal, S&P Equity Research.

The first question is regarding the ongoing discussion you're having regarding GLP1.

What position do you think the [inaudible] will take in this market, and specifically, the issue about beta cell restoration of function, and whether that might be a longer-term issue that has to be taken into consideration?

[Do you think it] really is a point at which you can hold patients back, inevitably, before actually moving into that market?

And why haven't you guys been [inaudible] as a new target or an area you want to go into?

Secondly, regarding European sales, I noted somewhere I believe you've reorganized the European sales.

I think they include the Eastern European countries.

With respect to the German [division's exit position], have you seen any impact on Western European sales as opposed to [inaudible] on the health market?

Has there been any impact of that from human versus analog [in your decision]?

And thirdly, just regarding the gross margin improvement, you mentioned 60% of that coming through a combination of increased yields and improved [inaudible].

Regarding your increases, I would presume that result also improved organisms but [inaudible] yield at the same facility.

I might be right.

Could you give me a bit more detail what sort of levels were you seeing?

How much better is your [inaudible] case than the opposition?

Yes, let's see.

Why don't you start, Mads, and then I'll cover the Europe and the production issues.

Okay.

Just a very kind of basic update on DPP4s versus GLP1s.

There's a very big difference also in terms of the beta cell prospects for the following reasons.

When you are [inaudible] to obese patients, basically your GLP1 levels as a response to a meal are somewhat decreased.

And these should actually be exaggerated, basically for the sheer reason that you need more insulin than normal.

You need maybe two to three times as much.

So you would expect a GLP1 peak that was exaggerated rather than what we have seen mainly being depressed.

When you then give a [inaudible] to the patient, which is a clearly [inaudible] molecule because it has a nice safety profile and so on, what you really achieve is a 1.5 to 2-fold increment over and above the depressed line of GLP1 secretion, bringing you more or less to the level of a normal healthy person, or maybe an obese person, but not into pharmacology levels.

And this is also why, when you do your animal studies, if you take 74 out of 75 models there is simply no effect of [the cytoglichin] or the liptin on beta cell mass or volume or longevity at all.

We've done those studies.

So have our colleagues in the industry.

If, however, you take a neonatal mouse and give it a special kind of chemical diabetes, you can see a marginal effect on beta cells, even with [inaudible] inhibitor.

Where there's a robust and distinct strong effect, it is of either exematide or liraglutide or other agonists, where we achieve typically tenfold exaggerated levels over and above the [inaudible] GLP1 levels.

And it's this pharmacological effect that triggers either a anti-[apoptronic] effect, i.e.

programmed slow death of the beta cell declines and/or a neogenic effect, we actually see ductal cells spreading out, proliferating and differentiating into pretty mature beta cells.

This you only see for things such as liraglutide or exematide.

This means that if we could in a long-term study prove that this also pans out in humans, because bear in mind that many animal pharmacological excitements have not borne out in the field of diabetes, unfortunately, in human beings, but if they do we'll know that maybe five years from now and it will be a very strong point for liraglutide.

And, Mads, why haven't we improved the OAD [inaudible] and what would make a change in strategy?

Yes.

Actually we did announce the compound called NN72 NN72/80, I think it was called.

So we actually have done a lot of DP4 inhibitor research and had some decent molecules.

But some of them actually were terminated due to either patent issues or tox issues or lack of competitiveness issues towards the end of the game.

So, unfortunately, we cannot boast to have such a thing.

I think they will fill, clinically speaking, a place in the pipeline or in the treatment cascade of diabetes, where they come in after Metformin.

So that patients, when they fail Metformin, instead of going onto [sulphamadurea] or glutazone, can go onto, for instance, [Innuvia].

But that will not really move into the big liraglutide market as we see it.

Okay.

And then moving onto the question about Europe, first you was commenting on the change in our structure between Europe and international operations.

The country that we have added in is really the expansion of E.U.

by Romania and Bulgaria, and then we've taken the former Yugoslavian Republic and added them in under Europe management.

But they are more characterized as being developed markets and have more similarities now to the rest of Europe.

And we believe they can benefit from the skill sets that we have in a number of the Eastern European countries like Poland, Hungary, etc.

So that's the reason for that readjustment.

But the comparative numbers have been adjusted, so the growth rate you're seeing in Europe is on a comparative basis.

But it was really the change in E.U.

that led us to do this sales force or the change in structure.

In terms of impact from the German Institute recommendation not to pay an additional premium for rapid-acting analogs in Germany, as you know, the manufacturers have negotiated revised prices in Germany.

The prices in Germany are still on an E.U.

average level.

Following this discount, it was the highest priced market in Europe and it has of course had the effect that we're seeing significantly less parallel trade coming into Germany.

So, net overall, the effect in Germany in 2007 is probably going to be in the ballpark of DKK100m.

We have seen some disturbance in the analog penetration, following from uncertainty from the doctors as to whether there would be reimbursement for the products.

That disruption is now gradually being washed out and we expect the analog penetration to come back into full gear in Germany within this year.

Germany was actually the market in Europe which had the lowest -- the developed market in Europe that has the lowest analog penetration.

So for us it was crucial that we got the analog conversion also going and continuing in this market.

I think it would be significantly more challenging in most other European markets, knowing that we have roughly half of the European markets converted, to try to pursue a route of not reimbursing analogs as almost all patients in most other markets are moving straight onto analog.

I think the more -- the challenge is probably more in rest of the countries that they are still pursuing ways of trying to lower the price.

I just think that the German way of doing it was very odd but --

And then the final question was in terms of gross margin.

The improvement that we get from the production, well, if we say that 60% of our improvement in gross margin can be referred to the production improvement, then it's probably only a third of that, say 20%, of the total which can be related to improvement in the production of the proteins per se.

We are not changing the yeast -- the cells that we use for the fermentation, because if we were doing that to a significant degree then we would have to re-register the product.

So it's true that we have done a change for both human insulin and for our analogs that was done a couple of years ago.

That is approved and those new cells are now working.

It's more an optimization all the way from fermentation, through recovery and [fermentation], where you basically look at each step and then identify where is now the current bottleneck and then try to get ever higher volumes through.

I think one of the interesting examples we have had is that the production volume of some of the facilities that we have has more or less doubled in the period where we've been optimizing on them.

Basically also investing a little bit along the way, but it's really coming from optimizing and continuously identification of bottlenecks, but actually doubling it from what was the original planned capacity to what we're currently operating at.

And of course there's still some scope.

That is the interesting thing with fermentation processes, that there are continued opportunities for expansion of the volume you can get through.

And then of course it has a direct bearing on what investment levels we are seeing.

And you see in our guidance for investment to sales coming down from a level around 10 to now around 8, and we feel quite comfortable in saying that for the remaining part of this decade we believe we have ample of both protein production facilities.

So that is also behind this revised guidance on investment to sales.

Okay.

With those comments, I think there will be lunch next door and we will all be available for questions.

Thank you very much for listening.